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Connect Group: 1st quarter 2010 results

- Net loss of EUR 752,000 (EUR 380,000 in Q1 2009)
- Turnover of EUR 32 million (EUR 33.5 million in Q1 2009)
- Orderbook up from EUR 55 million at end-2009 to EUR 57 million at end-Q1 2010.

These figures no longer show the effects of the automation activity. For the sake of comparability the 2009 figures have been restated, with the automation activity shown as a discontinued activity. Obligations with regard to periodical information in accordance with the transparency guidelines in force since 1 January 2008

Declaration with respect to the information given in this report covering the 3 months ending on 31 March 2010.
The undersigned declare that:
- the quarterly financial statements, which are drawn up in accordance with the applicable standards for annual financial statements, give a true and fair view of the net assets, the financial situation and the results of the issuer and of the companies included in the consolidation;
- the report covering the three months ending on 31 March 2010 gives a true and fair overview of the development of the company’s earnings and of the financial position of the issuer and of the companies included in the consolidation, and describes the main risks and uncertainties with which they are confronted.

Luc Switten CEO
Hugo Ciroux, CFO

Management discussion and analysis of the results

Connect Group NV (Euronext Brussels: CONN) posted turnover of EUR 32.0 million in the first quarter of 2010 (Q1 2009: EUR 33.5 million). The operating result fell from kEUR 458 positive in Q1 2009 to a loss of kEUR 160 in Q1 2010. The net result after taxes for the first quarter was a loss of kEUR 752 compared with a loss of kEUR 380 in Q1 2009 of the continuing activity and kEUR 1,448 loss for the group in Q1 2009 (including automation activity). 
The orderbook rose from EUR 55 million at end-2009 to EUR 57 million at the end of Q1 2010.
 

Luc Switten, CEO: “The first quarter of 2010 was difficult: positive aspects were a rise in the order book and a general increase in demand. On the other hand delays in components deliveries prevented us from converting the increased order book into effective turnover. We estimate that due to the lack of components in the first quarter we missed over EUR 2 million of turnover, with a direct impact on earnings.
We have made every effort to deliver on time to our customers, where possible purchasing the missing components on the open market at higher prices (brokering). The additional costs of brokering we cannot always, however, pass on to our customers, which has depressed earnings. The shortage of components has also meant less efficient use of production capacity (smaller production series, production line stoppages for conversion to other products), making wage costs higher than normal for the volume produced.
Until today we see no immediate improvement in the market for the availability of components. We are examining with our customers in how far they can provide us with longer-dated forecasts of their own needs, so as to give us optimal flexibility in the current uncertain component market.”

Significant events in 2010

On 2 March 2010 the sale of the automation activity to its former founders, Huub Baren and Vladimir Dobosch was completed. The present figures no longer show the effects of the automation activity. For the sake of comparability the 2009 figures have been restated, with the automation activity shown as a discontinued activity.

On 27 April 2010 the Extraordinary General Meeting approved a EUR 5 million convertible subordinated bond under the following conditions: suspension of general preferential rights, a minimum investment of EUR 50,000, a term of 6 years, an interest rate of 6 percent payable semi-annually, and a twice-yearly conversion option (following publication of annual and half-yearly figures). The bonds will be convertible at the lower of : (i) 70% of the average highest independent bid price for a Connect Group share, in the central order book of Euronext, over the 30 trading days preceding the date of exercise and (ii) EUR 2.00

The issuance of this subordinated warrant loan in an amount of EUR 5,000,000 considerably improves the Connect Group’s equity and cash position. This improvement of both the equity and the cash position was necessary, following the divestment of the automation activity at the end of 2009.

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